More On Legal & Compliancefrom The Advisor's Professional Library
- Client Communication and Miscommunication RIA policies and procedures must specify what type of communications should be retained. The safest course of action is for RIAs to retain all communicationsto clients, from clients, and about client accounts. To comply with fiduciary obligations, communications must be thorough and not mislead.
- Client Commission Practices and Soft Dollars RIAs should always evaluate whether the products and services they receive from broker-dealers are appropriate. The SEC suggested that an RIAs failure to stay within the scope of the Section 28(e) safe harbor may violate the advisors fiduciary duty to clients, so RIAs must evaluate their soft dollar relationships on a regular basis to ensure they are disclosed properly and that they do not negatively impact the best execution of clients transactions.
The Securities and Exchange said Friday that it charged the owner of a Holmdel, N.J.-based brokerage firm with manipulative stock trading that involved an illegal practice known as “layering” or “spoofing” and with registration violations.
Two firms and five individuals agreed to pay a combined total of nearly $3 million to settle the case, which involved misconduct from May 2008 to November 2011, according to the SEC.
“Week after week, Dondero lined his pockets by placing phony orders and tricking others into trading with him at distorted prices,” said Joseph G. Sansone, co-deputy chief of the SEC Enforcement Division’s Market Abuse Unit, in a statement. “The fact that Dondero perpetrated this deceit through the entry of trade orders did not allow him to evade detection.”
In layering, traders place orders with no intention of having them executed. The aim is to trick others into buying or selling a stock at an artificial price driven by the orders, which are later canceled, according to regulators.
The SEC says Joseph Dondero, a co-owner of Visionary Trading LLC, “repeatedly used this strategy to induce other market participants to trade in a particular stock.”
“The fair and efficient functioning of the markets requires that prices of securities reflect genuine supply and demand,” said Sanjay Wadhwa, senior associate director of the SEC’s New York Regional Office, in a press release. “Traders who pervert these natural forces by engaging in layering or some other form of manipulative trading invite close scrutiny from the SEC.”
In addition to charging Dondero, Visionary Trading and three other owners with operating a brokerage firm that wasn’t registered as required under the federal securities laws, the SEC charged. New York-based brokerage firm Lightspeed Trading LLC with aiding and abetting the registration violations.
In addition to Dondero, the SEC named Visionary Trading owners Eugene Giaquinto, Lee Heiss and Jason Medvin in the case, along withLightspeed’s former COO Andrew Actman.
In settling the regulatory charges, Dondero agreed to pay disgorgement of more than $1.1 million, plus prejudgment interest of nearly $47,000 and penalties of $785,000 for a total exceeding $1.9 million. He agreed to be barred from the securities industry.
Giaquinto, Heiss and Medvin must each pay disgorgement of about $118,600 plus prejudgment interest of roughly $14,400 and a penalty of $35,000 for a combined total of more than $500,000 from the three of them. They are barred from the securities industry for at least two years.
Lightspeed must pay disgorgement of $330,000 plus prejudgment interest of some $43,300, post-order interest of $4,900 and a penalty of $100,000 for a total of approximately $478,000. Actman agreed to a penalty of $10,000 and a supervisory bar for at least one year.